Tuesday, February 7, 2012

Google's promise to honor Motorola's existing FRAND obligations must be specific or won't be an improvement

A couple of hours after I learned that Motorola Mobility views standard-essential patents as a license to (literally) kill, I saw a Bloomberg report according to which Google "plans to send a letter to standards organizations reassuring them it will license Motorola Mobility Holdings Inc. patents on a fair and reasonable basis".

The exact content of the letter is unknown, but the way it's described in the article falls far short of what I would consider truly helpful assurances. A reaffirmed FRAND licensing commitment per se would be a mere tautology that doesn't change anything: there's no question that anyone acquiring Motorola Mobility will have to honor existing obligations. There may have been other transactions in the past when a patent holder's bankruptcy or other circumstances created doubt about the survival of such obligations, but Googlorola isn't such a case.

The relevant question here is not whether but inhowfar a Google-owned Motorola will make responsible use of the big stick that any holder of standard-essential patents wields. Will it reduce FRAND to an empty term (as it is currently trying in various litigations both in the United States and in Europe)? Or will it fully recognize that FRAND-pledged patents are not supposed to be used as weapons?

In my personal opinion, the appropriate test for whatever Google may put in writing now is whether this would make an important difference in pending or future litigations around the globe, including a jurisdictions like Germany (where the courts set a high bar for any FRAND defense). Will anyone who is currently facing FRAND patent assertions from MMI or may face it in the future get a more FRAND-compatible outcome after the judges see Google's statement? That should be the first and foremost question.

I'll be more specific. There are two issues here in connection with standard-essential patents that Google must address with particularity if it's sincere about FRAND:

Under which circumstances will Googlorola pursue injunctive relief based on standard-essential patents? My opinion -- and more importantly, that of a number of major players -- is that injunctive relief and a FRAND pledge are irreconcilable with each other except, perhaps, under the most egregious of circumstances, given that the whole idea of a FRAND licensing pledge is to promise the availability of licenses, which means that the only thing the patent holder and an implementer of the standard have to talk about is money -- and the courts can take care of that part without banning products in order to give a patent holder leverage that can be used for rather unFRANDly strategic purposes.

Last Friday, Apple had to remove a number of products from its German online store because of Motorola's enforcement of an injunction based on a patent essential to GPRS, a data transmission standard extending GSM. Today, Microsoft had to defend itself against two patents essential to the H.264 video codec standard, and MMI seeks injunctive relief despite Microsoft having made a formal offer to take a license. Will Google withdraw any such requests for injunctive relief if and when the acquisition goes through? Will it stop any ongoing enforcement of injunctions? Will it refrain from requesting new injunctions?

The other big issue on which Google has to speak out is whether its own understanding of FRAND royalty rates is any different from Motorola's. Will Google try to overcharge, or will its requests for license fees be in line with FRAND industry practice?

At today's German court hearing, Motorola's counsel argued that MPEG LA's license fees for a large number of patents essential to H.264 aren't relevant to what his client can demand, given that MPEG LA wants to promote widespread availability of its standard rather than aggressively pursue rent-seeking. Let's compare MPEG LA's rates to what Motorola represented in court today: for products implementing H.264, MPEG LA charges, according to its patent pool licensing terms, no royalty for the first 100,000 units per year, $0.20 per unit after the first 100,000 units, and $0.10 per unit above 5 million units per year. Also, the maximum annual royalty cap is $6.5 million. Motorola however, wants 2.25% of the price of such Microsoft products as Windows 7 -- not just the software but entire devices running such software. At the trial, Motorola's counsel came from the assumption of an average per-unit price of 250 euros. Let's use that figure for the sake of the argument. This means Motorola demands 5.63 euros, or based on today's exchange rate, $7.38 per unit: that's between 73 times (7,300%) and 146 times (14,600%) the per-unit MPEG LA rate. Is that discrepancy, which is even wider if one factors in the size of those pools relative to Motorola's portfolios, in line with Google's vision for FRAND licensing?

An unspecific FRAND promise won't answer the questions I just raised. Instead of beating around the bush, Google needs to address the real issues: injunctions and royalty rates.

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About Me

Florian Mueller is an app developer who used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.